The Credit Crisis May Not Be Over Yet
One of the issues with the subprime lending crash is no doubt some of the lending practices employed by financial institutions. But that is not the only doubtful practice that is affecting the financial sector, especially in terms of losses. Fortune Magazine on CNN Money has another story of doubtful practices including investing in debt:
Earlier this year, for example, Merrill Lynch, Citigroup and Bank of America gave almost no indication that one particularly toxic debt product — CDOs, or collateralized debt obligations — could be the source of billions of dollars in losses.
Those losses came to light this fall, blindsiding shareholders and pummeling banks’ stock prices.
So, it’s not just subprime lending that is causing problems among mortgage lenders. Other types of debt investment are hitting the stocks hard as well. So, even though a recent Citigroup deal appears to be helping the financial sector right now, some of the fundamental issues that led to the subprime mortgage mess, and the additional issues that could lead to the next credit crisis, have yet to be addressed.
Band-aids like “investor confidence” and “cash infusion” are being used to help buoy the stock market and even to try and slow the decent into recession for the economy. But unless fundamental changes are made in how credit is viewed and handled are made, the credit crisis is likely to continue.
November 27th, 2007 at 3:00 pm
[…] Check it out! While looking through the blogosphere we stumbled on an interesting post today.Here’s a quick excerptOne of the issues with the subprime lending crash is no doubt some of the lending practices employed by financial institutions. But that is not the only doubtful practice that is affecting the financial sector, especially in terms of … […]
November 29th, 2007 at 11:05 am
[…] Tuesday, I wrote that one of the reasons that the credit crisis might continue is due to the fact that many banks have billions of dollars in undisclosed and underdisclosed risk. […]